INVESTING

INVESTING; Game Makers Are Trying To Turn the Year Around

By SETH SCHIESEL

Published: November 15, 1998

WHEN the computer game industry envisions the holiday season, it sees fighter aces, Al Capone and a bizarre Swamp Thing-like creature called Abe.

Those are just a few of the characters that the game companies are counting on for a lift at the end of a year that has been only slightly more rewarding than a player's computer freezing just as the final goal is in sight.

It is not that players have been deprived of new diversions this year. But the picture has not been captivating for investors.

The industry's midsized stalwarts, including Activision Inc., the GT Interactive Software Corporation and Eidos P.L.C. of Britain, have seen their stocks decline or post only meager gains since Jan. 1. And many of the electronic game stocks that have risen, including those of Acclaim Entertainment Inc. and the 3DO Company, have done so from base prices of less than $5 a share.

It has not helped that two of the industry's most important developers -- Blizzard Entertainment and Sierra Online -- are owned by the Cendant Corporation, which has been roiled by disclosures of accounting irregularities. The stock of Electronic Arts Inc., the industry's dominant company, has returned 13.7 percent this year.

Much of the problem has been that a game company's quarterly performance can often ride on a single title, in much the same way that a movie studio's fortunes wax and wane with each new film.

''The Street is accustomed to asking for forecasts 12 to 14 months in advance, and that can be tough to provide, because there is an intersection of the business with the creative process,'' said Ronald Chaimowitz, chairman of GT Interactive. Mr. Chaimowitz is counting on Abe, the creature, to make a success of one of GT's main titles, Abe's Exodus.

Robert A. Kotick, Activision's chief executive, pointed out that only as companies become large do they gain the ability to manage their businesses effectively by shuffling projects. For instance, when Sin, a highly anticipated Activision game, failed to materialize last quarter, the company was able to rush out a package of remakes of old Atari games to fill its place.

''Before, we would not have been able to do that, because you don't have enough to work with,'' Mr. Kotick said. Now, Activision is depending on Sin to jump-start its holiday sales.

Investors have taken note. ''There's a flight to quality among investors that's favoring companies with extremely good execution and predictability,'' said Lawrence F. Marcus, an analyst for BT Alex. Brown in San Francisco. ''This holiday season should be strong.''

Mr. Marcus predicts that the stock of Electronic Arts, now at $43, will reach $51 in 6 to 12 months. His target for Activision, now trading at $13.5625, is $18.

Stephen S. Fleming, an analyst with BancBoston Robertson Stephens, has a six-month target of $11 on Acclaim, which closed on Friday at $8.6875.

The holiday season will give each game company a chance to make 1998 a success. Last year, for instance, the fourth calendar quarter provided about 81 percent of Electronic Arts' earnings for its fiscal year, which ended in March.

With less than two weeks until the start of the holiday shopping season, many are cuddling up in the warmth of optimism.

''When all the returns are in and we look at the sell-through results for the full calendar year,'' said Lawrence F. Probst 3d, chairman of Electronic Arts, ''I think this will be the biggest year in the history of the video game industry.''

Photo: GT Interactive is counting on Abe to lift holiday computer game sales.